Britain should leave the EU if Europe's judges trample on our basic protections

The unspoken rule of the EU game is that no state - or no large state, with my apologies to Ireland, Cyprus and others looking bruised lately - should ever be steamrollered on a vital national interest, or in a sector where it is the EU's leading player.

Germany must always be treated with care on the auto industry, France on agriculture and Britain on the nexus of banking, insurance, and finance that we call the City - unloved though it is, though I fail to see the superior morality of selling big cars to Russian oligarchs, or undercutting African farmers with subsidised EU grain.

That rule has been violated since the Lehman crisis. There has been a systematic squeeze on the City, driven in part by emotional spasms and by the urge to blame the rolling financial cataclysms since 2008 on the immediately visible agents of crisis rather than the deeper causes - excess world savings that must go into bubbles, the structure of globalisation and the inherent failings of monetary union.

Three EU agencies have been created with binding powers over banking, insurance and markets, able to override a British veto in extremis. The Coalition signed these bodies into EU law shortly after taking power, seemingly unaware of what they meant. This triple-headed Hydra strips Westminster of final control over regulation of the City for the first time in 300 years. The shift in power was masked at first by assurances that Britain would retain "operational" control. The edifice of single market law supposedly stood guard as guarantor.

That mask has fallen away. In January the ECJ threw out Britain's effort to stop the EU gaining powers to impose bans on "shorting" stocks, a dispute over the locus of control rather than the merits of "shorting".

Now it has thrown out Britain's effort to stop a vanguard of 11 EU states imposing a Tobin Tax that can levy fees by extra-terratorial fiat on trades in London if one party is based in Euroland. That means a derivative trade by Citigroup with Deutsche Bank (with its trading hub and 8,500 staff in London) would be caught in the net.

The ECJ's arguments are complex. It says the UK's challenge is premature since the EU-11 have not yet reached final agreement on the Tobin Tax, yet it dodged the issue of extra-territoriality and implicitly endorsed the principle that these states may deploy the EU's new mechanism of "enhanced cooperation" in this astonishing fashion.

The stakes are high. Roughly 40pc of global derivatives trades take place in London, and 75pc of Europe's trades. The worldwide market is $668 trillion in notional contracts, mostly interest rate and currency swaps. Bank of England data show that turnover in Britain is almost $4 trillion a day. The head of derivatives trading at one of the City's biggest banks said his team already has plans to switch everything to Singapore within 48 hours if the Tobin Tax ever comes.

The tax is gesture politics. Sweden's experiment in the 1980s had to be abandoned. It lowers net government revenue in the end by driving away business and eroding the tax base. France's Financial Markets Association said the recent trial run has been a fiasco, eating into volume and threatening the viability of Paris as a financial centre.

Athanasios Orphanides, a former European Central Bank governor, told The Telegraph last year that Britain would be left at the mercy of hostile forces if it left the EU. "It would be catastrophic. The UK would lose the protection it currently enjoys as the eurozone's major financial center," he said.

His point was that Britain is ideally placed within the EU but outside the quagmire of monetary union. It retains full access to the Single Market, with all its legal defences. Once post-Brexit the UK would have no way of stopping an onslaught of regulations aimed at forcing banks and fund managers to decamp to the eurozone. He warned that the ECB is already clamping down on payments and settlement systems conducted in euros outside its jurisdiction.

Yet if the ECJ sweeps aside that single market defence regardless - with no appeal possible - nothing remains. The EU is then an arbitrary power without a rule of law. There is no longer much to be lost from leaving. Britain might as well break free, reverting to its historic vocation as a global trading hub.

My working assumption on Brexit has always been the EU would not in fact retaliate on trade, if it can hold together at all. The Netherlands, Scandinavia, Germany, Poland, Italy, Spain and France would for various reasons seek to reach a new modus vivendi, ensuring that commerce scarcely missed a beat. Foreign policy and military ties would carry on as before. I doubt in any case that monetary union can ever be made to function properly, so the issue of ECB oversight will be overtaken by events in the end.

Be that as it may, we will find out soon whether the ECJ intends to throw out a UK Treasury case in 2011 challenging the European Central Bank's powers to stop clearing houses such LCH Clearnet being forced to relocate part of their business from London to eurozone hubs. Leaked documents from the Banque de France in 2009 revealed that Paris is explicitly trying break London’s grip on the clearing house business by using regulatory control.

Nobody should be too shocked if the ECJ is taking sides in this guerilla warfare. My own dealings with the body a decade ago covering three free speech cases - Bernard Connolly, Marta Andreasen and Hans-Martin Tillack - led me to conclude that the ECJ is a rubber-stamp for executive power, a reflexive enforcer of the European Project.

The Advocate-General in the Connolly case even cited legal blasphemy codes as grounds for legitimately suppressing criticism of the EU, suggesting that a whistleblower book revealing abuses in Brussels was comparable in villainy to a pornographic video depicting St Teresa of Avila.

The ECJ has since become more powerful, extending its jurisdiction from EU Community law (essentially commerce) to the much broader realm of Union law with the Lisbon Treaty. It is a force to be reckoned with, or preferably kept at a very safe sovereign distance.

The judges have shown their colours in two pivotal rulings this year. Three strikes and surely we're out.

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